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Trade and Endogenous Formation of Regions in a Developing Country
Author(s) -
Gries Thomas,
Naude Wim
Publication year - 2008
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2007.00382.x
Subject(s) - externality , economics , economic geography , transaction cost , panel data , international trade , imitation , capital good , endogenous growth theory , international economics , human capital , capital (architecture) , economies of scale , market access , scale (ratio) , economy , geography , market economy , microeconomics , goods and services , econometrics , psychology , social psychology , agriculture , cartography , archaeology
The authors present a model of regional catching‐up and development without scale effects. Regional growth is driven by technological imitation which is determined by positive externalities from international trade, the regions’ geography, and regional institutions. For the two regions considered, factor endowments are immobile land and human capital which is perfectly mobile between the two regions. Endogenous formation of regions is analyzed by introducing a non‐symmetric decrease in international transaction costs, reflecting the different geography and institutions in the two regions. Using panel data from 354 South African magisterial districts over the period 1996 to 2000, we find that geography is important in explaining trade patterns. As predicted, regions that are larger in terms of economic size, with good foreign market access and know‐how of foreign markets, competitive transport costs and a good local institutional support framework will be more successful in exporting manufactured goods than other regions.